A crisis over cross-border financial contracts could adversely impact 36 million policyholders in the UK post-Brexit.

A paper by TheCityUK warns that, without a coordinated response between the UK, EU, and public/corporate communities, the £36trn of outstanding uncleared derivatives contracts could be impacted without a solution.

While TheCityUK CEO Miles Celic stated that it “sounds like an obscure issue”, ignoring the question of contract continuity post-Brexit is to “play a dangerous game of chicken with the finances of customers across the whole of Europe”.

The concerns span a range of financial products, including insurance, pensions, medium and long-dated derivatives contracts, and revolving credit facilities. TheCityUK said it might also affect general customer terms of business, prime brokerage and custody arrangements.

A potential solution would be to “grandfather” the contracts through an interim period or until they mature. Grandfathering means to maintain the application of previous rules to existing contractual or legal situations.

The contractual grandfathering could be achieved in one of three different ways, TheCityUK posited. These are:

• A bilateral agreement between the UK and EU, supported by regulatory co-operation.
• Separate regulatory action or legislation in each jurisdiction, consistent with the approach agreed between the UK and EU.
• Inclusion in the EU Withdrawal Agreement alongside appropriate regulatory backing for such a political agreement.

Any one of these options would require ongoing supervision between the UK, EU and regulators post-Brexit.

“Continuing to be able to serve customers and clients is the industry’s number one priority,” Celic added.

“While firms are doing everything they can, this is not a problem that businesses can fix alone and requires a coordinated UK/EU approach. Without it, people and businesses across Europe could be left dangling over a cliff edge following Brexit.”